international case competition, neoma business school - march 2012

International Case CompetitionThe ConsulTeam

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The ConsulTeam

Edouard JAMES

Jean LEMERCIER

Maï-thi VAN CONG

TRANG

Cécilia COSNARD DES

CLOSETS

Beiping OU

Salimath ASSANI

Ilham EL FARSI

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Agenda

Current Situation Key Issues Strategic Key Achievements Strategic Plan Timeline Financial Forecast Exit Plan Conclusion

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• Opportunity : Increasing buying power in emerging markets • China, Middle East and Russia

• Tendency for responsible consumerism• From a “me-me-me” to a “me-me… and others” world.

• Fashion industry lacks CSR• No real competitors

• Company response: “Socially responsible Affordable luxury clothing”

CURRENT SITUATION

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Luxury + Affordable = oxymoron

1. Positioning is ineffective• Company products150% cheaper than competitors (Price

insensitive industry)

• Forgoes value underlying in sustainability• The affordability is not compatible with the

positioning

2. Company struggles to finance its operations• Three rounds of financing in three years

KEY ISSUES

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Financial• Increase EBIT by 11% on average

• Raise by four times the company value (80M DKK)

Marketing • Become a leading CSR company in the fashion industry

• A strong and clarified market positioning

Strategic Key Achievements

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STRATEGIC PLANPOSITIONING ISSUE

« Show customers the added value of sustainability»

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• •Noir: luxurious image

• •Separate uniforms from Noir

• •Blue , new brand for uniforms

PRODUCT« Show customers the added

value of sustainability»

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• « Show customers the added value of sustainability»

• Hire models that vehicle an appropriate brand image

•Younger employees

•Leading Scandinavian agency

PEOPLE

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•Visual communication

•Online strategy: Annual reports & Website content

•Correct consumer perception

•Public relations strategy

Promotion« Show customers the added value of sustainability»

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• New slogan: “Noir - How to make chic ethic”

• New mission statement: “Design & create modern and luxury collections in a highly sustainable production chain.”

• New vision statement : “Noir/Illuminati II’s aim is to create a new image for the fashion industry by combining luxury and sustainability. We want to prove that high quality clothes can be made in a socially responsible and ethical way.”

• CSR is the « fuel » of the company

Promotion (2)« Show customers the added value of sustainability»

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LABEL

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Increase prices by 35% (ex : $ 2,700/suit)

• Better costs coverage

• Products still cheaper than competitors’ (-10%)

• Inelasticity to the price in the luxurious sector

Pricing« Show customers the added value of

sustainability»

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TIMELINE

2006-2008 • Creation of the

new brand for the uniforms

• Promotion (webdesign)

• Repositioning

2008-2015• Launch a flagship

store in Copenhagen

• Entering the emerging markets

2015-2016

• Create an affordable brand

• IPO in stock exchange

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Financial Forecasts

Set of assumptions:• 2006-2008: 10% additional turnover• 2009-2016: 15% additional turnover• 2009-2016: WACC reduced to 20%• Other data remain unchanged

Financial achievements:• Gross Margin: +7% on average• EBIT: +11% on average• Company’s value 4 times higher

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Evolution of Discounted Cash Flows (in DKK)

Entering emerging countriesand Denmark

New pricing

strategy

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-5000000

0

5000000

10000000

15000000

20000000

NPV of FCF

NPV of FCF - New Strategy

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Cumulative Discounted Cash Flows (in DKK)

200520062007200820092010201120122013201420152016

-20000000

0

20000000

40000000

60000000

80000000

100000000

Cumulative NPV of FCFCumulative NPV of FCF - New Strategy

Original strategy

New strategy

Cumulative Discounted Cash

Flows >0

5.9 years 3.6 years

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Short-Term Involvement•Sell the uniform division

• To generate cash (DKK 7,800,00) for further development

• Focus on Noir business and development

Long-Term Involvement•Sell company’s shares to the remaining investors or to the Balder Group

• Bigger volume of sales

• Give up on the luxury brand: Loss of the brand entity

EXIT PLAN

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Conclusion

1

• A new positioning based on sustainability and prestige

2

• Additional perceived value (customers)

3

• Better financial results

4• Improved financing capacity

Thank you for your attention !

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• Sensitivity analysis : The cost of capital is jeopardizing the company profit’s

• DCF Valuation of Noir (Before our plan of action)

• DCF Valuation of Noir (After our plan of action)

• Forecasted Income statement after our action plan

• Payback Time: Cumulative Discounted Cash Flows > 0

• ROCE – ROE & EVA

Appendix

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Sensitivity analysis : The cost of capital is jeopardizing the company profit’s

Sensitivity Analysis

(+) 1% WACC (-16%) FCF

(-1%) Growth in Terminal Period (-0,67%) FCF

(-1%) Sales (-3%) FCF

The company profitability is 6 times more sensitive to the cost of capital than to Sales.

The cost of capital must be lowered.

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DCF Valuation of Noir (Before our plan of action)NPV of

FCF2 005 2 006 2 007 2 008 2 009 2 010

2011-2015

- 3 214 142,00 DKK

- 3 668 039,00 DKK

- 2 737 255,00 DKK

1 160 935,00 DKK

3 584 162,00 DKK

5 221 126,00 DKK

22 253 565,00 DKK

Sum of 2005-

2015 FCF Net

present Value

22 600 352

DKK

Perpetuity cash flow

(2015 FCF)

13 953 749

DKK @ 25% WACC – Future

value of perpetuity

55 814 996

DKK PV of

perpetuity (FV/1,25^

12)

3 835 577

DKK VALUE OF THE

COMPANY (DCF)

26 435 929 DKK The value of the company before our action plan & based on DCF is DKK 26M

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DCF Valuation of Noir (After our plan of action)

NPV of FCF

2 005 2 006 2 007 2 008 2 009 2 0102011-2015

- 3 214 142,00 DKK

- 2 451 123,00 DKK

- 232 482,00 DKK

10 104 071,00 DKK

10 380 787,00 DKK

16 168 863,00 DKK

49 392 412,00 DKK

Sum of 2005-

2015 FCF Net

present Value

80 613 350

DKK

Perpetuity cash flow

(2015 FCF)

4 078 718

DKK @ 20% WACC – Future

value of perpetuity

20 393 590

DKK PV of

perpetuity (FV/1,25^

12)

2 287 276

DKK

VALUE OF THE

COMPANY (DCF)

82 900 626 DKK

The value of the company after our action plan & based on DCF is DKK 82M

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Forecasted Income statement after our action plan

Assumptions• Additionnal growth of 10% per annum for the 2005-2007 period• Additionnal growth of 15% per annum from 2008 until 2010 (due to sales in the Middle East market)• WACC at 20% from 2008 (due to a third round of financing)

Forecast

Terminal Period

(DKK) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EBIT-4 991

000-5 433

200 -2 224 100 16 758 00026 667

50047 840

70052 624

770 51 994 66850 512

648 48 214 277 42 090 581 42 090 581Adjust

tax-1 397

480-1 521

296 -622 748 4 692 240 7 466 90013 395

39614 734

936 14 558 50714 143

541 13 499 998 11 785 363 11 785 363

EBIT after tax

-3 593 520

-3 911 904 -1 601 352 12 065 760

19 200 600

34 445 304

37 889 834 37 436 161

36 369 106 34 714 279 30 305 218 30 305 218

Write offs - - - - - - - - - - - -

Gross cash flow

-3 593 520

-3 911 904 -1 601 352 12 065 760

19 200 600

34 445 304

37 889 834 37 436 161

36 369 106 34 714 279 30 305 218 30 305 218

Changes

in working capital - -848 000 -1 965 167 -5 806 833 -2 325 000 -5 788 000 -1 673 300 -1 840 630 -2 024 693 -2 227 162 -740 010 -

Changes in Fixed Assets - - - - - - - - - - - -

Free cash flow

-3 593 520

-3 063 904 363 815 17 872 593

21 525 600

40 233 304

39 563 134 39 276 791

38 393 799 36 941 441 31 045 228 30 305 218

Discount factor,W

ACC 1 1 1 1 0 0 0 0 0 0 0 0NPV of FCF - New

Strategy

-3 214 142

-2 451 123 232 841 9 150 767

10 380 787

16 168 862

13 249 613 10 961 431 8 929 171 7 159 499 5 013 978 4 078 718

NPV of FCF

-3 214 142

-3 668 039 -2 737 266 1 160 935 3 584 162 5 221 1265 695 070 4 215 845 2 988 055 1 994 226 1 269 026 1 198 617

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Payback Time: Cumulative Discounted Cash Flows > 0

Original strategy

New strategy

Cumulative Discounted Cash

Flows > 0

5.9 years 3.6 years

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ROCE – ROE & EVA

Year 2008

ROCE 46.5%

ROE 25.9%

EVA DKK 182 900 000

international case competition, neoma business school - march 2012

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